Has this ever happened to you? Your technicians come into your office and tell you that your prices are just too high and that you had better cut back on pricing if you are going to be competitive in the market. You also hear them discussing, behind your back, that you are ‘filthy rich’ and don’t care about their future as long as you make your money and keep gouging people.
The next day they come in and tell you they need a raise.
On the weekend you find out they went to some sporting event and paid $8 for a 16 oz. beer. Got four or five beers and tell you they can’t believe how expensive cigarettes are these days!
Or am I the only one that has ever experienced this?
As a leader you often have to “cut through the noise. You also have to help people see reality. For instance, you can’t cut prices and give employees a raise. It just doesn’t work that way.
As soon as you tell them that you can cut prices … then ask how much of a pay cut they want and tell them you’ll do the same … you’ll find you really upset them. The key then, as a leader, is to find a way to get your employees to better understand the costs of running or owning a business.
Go to the bank and get 100 pennies.
First you must ask your people what they think you make for every dollar you bring in. It is important to get an answer from them. If it is your own business explain to them, too, that you have risked everything you have. Also explain that you (most likely) had to leverage your house to be able to get the load to buy/start your business.
Next, put those 100 pennies on the table and explain that you want them to better understand what it costs to be in business. This might help you prevent them from becoming a competitor. If you can use an actual P & L with percentages it becomes much more dynamic.
- Take pennies for your cost of goods—use your percentage of revenue. This may be your cost of glass and other job-direct costs.
- Take certain amount of pennies away and explain that this is for the true labor costs—including pay, benefits, insurance and workman’s compensation.
- Take another portion of pennies away for phone, repairs, etc.
- Take a few more pennies away for rent.
- Take more away if you are providing any insurance coverage.
- Keep going … take even more pennies away and explain what you spend on advertising.
- Money that covers office supplies, credit card fees, computers and computer supplies comes next.
You won’t have much money left—usually less than what they think you should be taking out of the business.
- The final cut is what you have to pay in taxes. Take those pennies away and explain to them this is what you are able to take out of the business.
I’ve seen another version of this that is even more powerful. My franchisee drew a chart showing the percentage that was taken out next to what the right number should be. For instance, he would look at his P & L and explain that 31 percent was the cost of goods. The true number should be 26 percent (or whatever your number is).
When it got to wages he would do the opposite and explain that if the team could reduce some percentages of waste or inefficiencies—there would be more money for wages.
Simple? Absolutely! Effective? Yes, if you do it correctly. This is the importance of using a real P & L.
Owning a business is hard enough in life. It becomes easier if you know the team you lead is supporting you every step of the way and they know you are supporting them as well.
Try it … you’ll like it!